What is the prime interest rate for credit cards?
Editor's Note
When you apply for a credit card, you'll be presented with several disclosures covering everything from card benefits and fees to the card's annual percentage rate (APR).
Many people don't realize that the APR — which reflects the total yearly cost of borrowing money — is based on the federal prime rate.
To better understand how these two things are intertwined, let's examine how the prime rate is set and its effect on your card's interest rate.
What is the prime rate for credit cards?
The prime rate is one of the factors banks and other lenders use to establish APRs on credit cards and most types of loans. The prime rate affects what your interest rate will be and, therefore, how much you will have to pay if you're subject to interest charges.
While the prime rate is a basis for credit card interest rates, it doesn't mean that your credit card's APR will match the prime rate.
For example, despite the prime interest rate being 7.5% in late December 2024, cardholders should not expect to pay 7.5% APR on their credit cards, even with a good credit score. The prime rate only acts as a foundation. Credit card issuers determine the interest rate, and the average rate currently in the market is around 20% (though we often see rates exceeding 26% and sometimes even higher than 30%).
Related: 8 Best 0% APR and low interest credit cards
How is the prime rate set?
Generally speaking, the prime rate is derived from the Federal Reserve's funds rate, which is the interest rate set by the Federal Reserve Board. Typically, the prime rate is around three percentage points higher; as of late December 2024, the Federal Reserve's rate is 4.33%, which correlates to the 7.5% prime rate.
Unfortunately for borrowers, the Federal Reserve has been increasing rates since early 2022. These regular increases in the Federal Reserve's funds rate have corresponded to an increase in the prime rate and, thus, an increase in credit card APRs.
However, any rate cuts from the federal fund rate will also lower the prime rate; this lowers credit card APRs and interest consumers must pay on their credit cards.
Related: Looking ahead: 11 things the TPG team is excited about for 2025
What effect does the prime rate have on your interest rate?
Most credit cards have a variable interest rate or variable APR based on the prime interest rate. Therefore, the APR can go up or down based on the prime rate, and the issuer is not required to notify you when the variable rate changes due to the prime interest rate changes.
The best way to track the variable APR on your credit cards is to look at your monthly statements. You may or may not see your interest rate rising or falling a few points.
If you pay your balance in full every month, you don't need to worry about paying interest on your charges; however, if you carry a balance every month or from time to time, it's best practice to monitor your interest rate.
Related: Credit card debt hits all-time high of $1 trillion — here's how to consolidate and pay off your debt
How to protect your finances
Changes to a credit card prime rate are not within your control. What is in your control is whether or not you are charged interest on your credit cards.
The best way to protect yourself from the impact of higher prime rates on your credit card APR is to pay off your statement balance in full every month so that you don't pay any interest.
Even if $1 remains from your previous statement balance when the next statement closes, you will be charged interest.
To stay on top of your payments, we recommend that you set up autopay to ensure your statement balance is paid monthly. It's always best practice not to carry a monthly balance. It is also a fiscally smart move not to use your credit card if you cannot afford to pay it off within one or two statement balances.
If you prefer not to set up automatic payments, set calendar reminders to remind yourself to make your credit card payments on time.
Related: Staying organized: The best apps for money management
Bottom line
The prime rate for credit cards can affect how much or how little interest you pay on your card balance. While this number fluctuates, it's best to pay off your balances in full whenever possible. This way, you avoid interest charges and keep more money in your pocket.
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- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
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You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.